Banks Should Act Like Startups When it Comes to Innovation

A session at BAI Retail Delivery 2013 emphasized creating new ideas and having deep customer empathy.

When it comes to pursuing innovation, banks need to adopt the mentality of a startup. That was the theme of a session titled "Creating an Innovation Framework that Works" at BAI Retail Delivery 2013 featuring Nicole Lorch, SVP Retail Banking at First Internet Bank and Jeff Lauterer, Leader, Product Operations for online banking services provider Digital Insight.

According to Lauterer, innovation occurs in any industry not just by creating new products, but by tweaking existing products in such a way that demand increases so much a company needs to hire extra employees just to handle that product. He cited Taco Bell's "Taco Loco" -- a recent addition to the fast food chain's menu featuring a Dorito as a taco shell -- as one prime example of this.

"Innovation can happen anywhere," Lauterer noted. "The key is bringing in a culture of innovation that is sustainable and continuous."

One way to do this, he said, is to adopt a philosophy of "going broad to go narrow" with ideas. This means getting as many ideas out there as possible, and creating options before making a choice, he noted.

"In order to get to the right idea you have to create a bunch of them," he added. "The reality is most ideas fail."

Lauterer also advised banks to pursue "deep customer empathy," which he defined as "knowing your customer better than they know themselves." This kind of customer knowledge, he said, comes from going out and interacting with customers, such as asking people in a public park what they think of a potential new product, or working at a small business for a day to better understand their needs.

"It's hard to understand the customer from your office," he added, "You have to go out there and be with them in their environment and talk with them."

Lorch said First Internet Bank, founded in 1999 as one of the first FDIC-insured internet-only banks, has undergone a lot of trial-and-error since its inception but has used customer feedback to better tailor its products for their needs.

For example, as the bank was undergoing a rebranding in 2009, it sought to "retain and attract the best customers." So the bank asked its existing customers what their pain points were and how the bank could solve them.

One thing First Internet Bank found, said Loch, was that customers "expressed a loss of day-to-day control" over their financial situation, as their lives became more busy and hectic. "We found people wanted the bank to communicate with them and tell them what’s going on," she added. "They also wanted help with making financial decisions."

In order to help in these areas, First Internet Bank promoted its Financeworks PFM suite to its customers, specifically the aggregation feature that allows them to see their account information with First Internet Bank and other financial institutions all in one place, she said.

The bank also found customers had "a lot of anxiety" when it came to dealing with the contact center. So, Lorch explained, the bank created a new service called "Talk to First IB," which allows customers to get a real-time glimpse of agents that are available, and the ability to contact a specific agent directly and bypass the traditional call-in queue.

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio

Yes, as you can imagine, their customer base is younger, tech savvy, people who prefer to do their financial transactions on the internet/mobile device as opposed to a branch, according to Loch. As a new institutions, and one without a branch footprint, they also are dealing with much less core legacy systems, I'd imagine.

I would be curious to know the demographics/profile of the First Internet Bank customer base. Is it as diverse -- age-wise, ethnically, income-wise, gender, etc. -- as other banks of its size (or other banks in general)? I wonder if it perhaps has a more homogenous customer base and one that is perhaps more tech savvy and also more willing to share extensive info about themselves, or at least a more "relaxed" attitude about privacy and info sharing. I think the principles Loch outlined make sense but it may be somewhat easier for a bank with a less-traditional customer base to advance in these areas. Which of course just make it even more critical for most banks to radically rethink how they approach customer focus.